By: Dr Aruna Ram
My previous article reviewed the first issue in current environmental performance rating schemes, narrow range of indicators, with a detailed example. This article deals with other issues, insights, potential solutions captured in the new Corporate Environmental Performance Rating (CEPR) methodology that was developed to address such issues.
a) Lack of transparency/ clarity in justification of rating process is true with most current schemes. Since most proprietary methodologies are not transparent, there is no way the public and other stakeholders can verify such schemes. Either the methodologies are not fully transparent being proprietary or are not clearly weight justified. For instance, percentages allotted in partially transparent Newsweek’s or points allocated in fully transparent ULE880 schemes are not clearly justified for the weight allocations. The weight justification in both, follow the Delphi system, which is based more on experience rather than clear weight justification based on sound sustainability principles and empirical data wherever possible. A potential solution as captured in CEPR is, to write standardized and fully transparent grading rules to promote environmental sustainability across industries, by minimizing environmental risks as the top priority, progressively reducing it to those environmental activities that contribute least to sustainability, which are clearly based on sound sustainability principles and empirical data analysis wherever possible.Weight allocations based on empirical data should be encouraged wherever possible, which can be more accurate than a Delphi system based only on experience, esp., where we have public data available from government sources such as the EPA.
b) An insight provided by the analysis of retail industry using CEPR scheme, is that balanced greening is more important than focused greening. A clear example of focused greening is that of Kohl’s. They intend to become the leading environmental retailer through focused resource stewardship. Kohl’s environmental load from in house processes is one of the lowest in the industry and was awarded the greenest in its industry by Newsweek. However, when it comes to environmental load from products, Kohl’s lags far behind its peers, Walmart or Target. Load from products is a major portion of the net environmental load as well on people, plant, habitat and buildings. Hence, the net environmental load of Kohl’s is much higher than its peers, IKEA or Walmart which serve the green customer better. Practically, if a customer wants to shop for eco friendly products, Kohl’s stocks almost none except for ban on animal tested cosmetics. This will confuse the customer, whether to buy an eco friendly product or to buy an ordinary product from an eco friendly store. Ideally, IKEA serves the green customer the best in its industry, since it offers a fine balance of both. A potential solution is to understand the importance of balanced greening or cradle to grave measures as prescribed in the CEPR, that also serves to unify the various perspectives such as a) company, b) planet and c) people, instead of them being different.
c) Currently, there are some guidelines offered by the Global Reporting Initiative (GRI) for CSR reporting. However, this is voluntary, does not include the full range of indicators nor does it prescribe clearly defined units for the same. Hence, difficulty in reporting uniformly for companies and in data collection for analysis, comparisons and interpretation of reports for both stakeholders and analysts. CSR reports are rewarded for their creativity in report writing instead of effective communication. Most reports are verbose, though not necessarily adequate or transparent in effectively communicating what they should. An example of how reporting can be fuzzy is as follows: J C Penney disclosed that its energy usage was almost the same as last year despite opening new stores. This looks very promising. However, when its energy intensity which is net usage per sales $ was calculated, it had in fact increased in 2008 by 8%. Neither GRI, Newsweek nor ULE880 clearly prescribe which units to follow in the different categories. Another example of fuzzzy reporting is as follows.G3 in GRI prescribes Waste indicator as total amount of waste by type and disposal method. Now, lack of clearly defined units or data on what % of waste is recycled by GRI, leave companies reporting a whole range of materials like paper, plastic, electronics, CFLs, bottles, cans, glass, etc without disclosing how much is actually recycled, a key indicator in sustainability. Standardizing the report format with relevant range of indicators, with clearly defined units as prescribed in CEPR along with freedom of being creative can help analysts gather data quickly, help companies communicate their data effectively and also help stakeholders understand clearly.
The following articles will bring out other issues in the current environmental rating schemes.
The rest of Dr. Ram’s Environmental Sustainability Scorecard series can be found here.